The decline of Google (and the Internet's) ad business

By Rebecca Greenfield

July 20, 2012

As three makes a trend, a third quarter in a row of cost-per-click decline for Google advertising makes this an unsettling norm not only for the search company, but also for Internet advertising efforts elsewhere. During yesterday's earning call, Google reported a 16 percent decline in CPC, meaning the value of each advertisement clicked has gone down. That follows a 12 percent drop last quarter and 8 percent the quarter before that. Even at the company that managed to make money off of Internet advertising, those online ads are continually losing value.

In the scheme of the Internet, Google's loss shows an unfortunate reality of online advertising. Unlike the print world, Internet ads lose value over time. As Technology Review's Michael Wolff bluntly put it: "The nature of people's behavior on the Web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command attention, has meant a marked decline in advertising's impact," he writes. Google eluded online advertising woes by making itself a necessary middle man, via Ad-words, Wolff continues. And it did this early, which also helped, explains SmartMoney's Jack Hough. But even that hasn't stopped the core inevitability that online advertising is a race to a bottom, as we've seen these last three quarters.

Google has blamed this on mobile, only further proving the ever-declining value of an Internet ad. "People have long described the price difference between print and Web ads as moving from analog dollars to digital dimes," explains The New York Times's Claire Cain Miller. "Cellphone ads could be described as trading those dimes for mobile pennies. Clicks on mobile ads cost about 40 percent of the price of desktop ads, according to Stifel Nicolaus," she continues. And, unfortunately for the ad-sales biz, the stats show mobile use is on the rise.